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Bernie Madoff’s Last Surviving Son Was Under Scrutiny Until He Died — And Questions Still Surround $16 Million Estate

Associated Press

Andrew Madoff

Andrew Madoff

The court-appointed trustee seeking to recover money for bilked investors began taking aim at Andrew Madoff’s money even before his Sept. 3 death from mantle cell lymphoma. Two federal officials also said Madoff would have likely faced tax evasion charges if he had not died.

Bernard Madoff’s last surviving son was under investigation for possible involvement in his father’s multibillion-dollar Ponzi scheme until the day he died from cancer earlier this month — but scrutiny over his $16 million estate lives on.

The court-appointed trustee seeking to recover money for bilked investors began taking aim at Andrew Madoff’s money even before his death, filing an updated lawsuit this summer accusing him and his brother of having full knowledge of their father’s scheme and using it as their “personal cookie jar” that they tapped through sham loans, fictitious trades and deferred compensation.

Andrew, who died Sept. 3 at age 48 from mantle cell lymphoma, had long maintained that he and his brother, Mark, who hanged himself in 2010 at age 46, worked on the legitimate trading side of their father’s firm and knew nothing of the massive fraud. They noted that they were the ones who went to the authorities after their father confessed the Ponzi scheme to them in 2008.

Two federal law enforcement officials, who spoke on condition of anonymity because they were not authorized to discuss the case, said investigators never believed the brothers were unaware of the fraud and both were the focus of active investigations until the time of their deaths.

But the officials acknowledged that it has been difficult substantiating their suspicions, and as investigators unraveled the case’s complex web of financial chicanery they had increasingly turned their attention to a case they felt they could prove: tax evasion.

Both officials said it was likely Andrew Madoff would have faced tax evasion charges if he had not died. The ultimate goal, they said, was using federal charges as leverage to get him to return money to investors.

Attorney Martin Flumenbaum, the executor of Andrew Madoff’s will, has maintained that the brothers never “knew of, or knowingly participated, in their father’s criminal conduct.” Flumenbaum did not respond to a request for comment on the possibility of tax charges against Andrew Madoff.

During a 2011 interview on “60 Minutes,” Andrew Madoff said that from the beginning he had “absolutely nothing to hide and I’ve been eager, almost desperate, to speak out publicly and tell people I am not involved.”

Bernard Madoff, now 76, is serving a 150-year prison sentence in a North Carolina prison after admitting he fleeced thousands of investors in a scheme that went on for decades.

Five former high-level Madoff firm employees were convicted earlier this year of helping carry out the fraud by conspiring to defraud clients and falsifying records. It is unclear whether anyone else will be charged, though prosecutors describe the investigation as ongoing and have obtained in the last week delays in the sentencing of several cooperators.

Days after Andrew Madoff’s death, his will was made public, detailing an estate worth $16 million. He left his wife Deborah West — who filed for divorce after the fraud was made public — about $5 million, divided his tangible personal property equally among his two college-age daughters and provided his fiancée, Catherine Hooper, with $50,000 a month until the money he left is gone.

Irving Picard, the trustee who has so far recovered more than half of the $20 billion invested in the Ponzi scheme, is seeking to recover money from the estates of both brothers and has the power to pursue money and assets wherever they are disbursed.

He charged in his recent lawsuit that the Madoff sons knew about the fraud and tried to cover it up by deleting emails during a Securities and Exchange Commission probe.

Picard contends they owe investors $153 million, along with compensatory and punitive damages. The trustee said the funds he seeks include millions of dollars of customer money that was illegally transferred into accounts held in the names of the Madoff brothers, their spouses and children.

In a July release, David Sheeham, Picard’s chief counsel, noted that the brothers received salaries and bonuses exceeding $20 million in 2007, even as the side of the business they oversaw produced losses of more than $58 million.

Sheeham said that the Madoff family continues “to live a lifestyle that others only dream about, holding on to a broad array of property paid for with ill-gotten gains, all of this while many victims of the Ponzi scheme still struggle. It is time for them to do the right thing and give back the stolen funds.”

At the time of the lawsuit, Andrew Madoff attorney Flumenbaum called the new allegations “unfounded and false.”

“As we stated from the outset, neither Andrew nor Mark knew of, or knowingly participated, in their father’s criminal conduct,” Flumenbaum said. “It was Andrew and Mark who informed the authorities of their father’s fraud and put an end to it.”

Source:  nydailynews.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/headlines/madoff-estate ‎

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Parents, the Children Will Be Fine – Spend Their Inheritance Now

NYT article by Ron Lieber

inheritanceOnce people hit retirement, they do not know how long they will live or how long their money will last.

Still, the vast majority of retirees with children cling to an intention to leave something behind, even though many of those offspring have no expectation of receiving an inheritance.

This parental instinct might seem loving and generous, but there is another way to look at it. All of this devotion to the next generation may also be the height of foolishness. After a few decades of spending well into the six figures to rear and educate each child (and increasingly, years more backstopping young adults who are not quite financially independent), the parents probably ought to cease feeling this sense of obligation. Far better to spend their retirement money in the present on making meaningful memories with family members or on top-notch care that can help make aging more comfortable and graceful — in their own home if possible.

So how can we middle-aged kids convince our parents that they are officially off the hook?

First, consider the state of the generational disconnect. In an article that the journal The Gerontologist published last year, Kyungmin Kim and four colleagues took the unusual step of using polling data from both older Americans and their adult children about whether they expected to leave or receive an inheritance.

Ms. Kim, a postdoctoral fellow at the Population Research Center at the University of Texas, reported these results. Among the parents, ages 59 to 96, 86.2 percent expected to leave a bequest. But just 44.6 percent of the children, ages 40 to 60, thought they would get one. As for the most agonizing possible mismatch, where parents had no intention of leaving money behind but their children were expecting some, just 2.4 percent of the parent-child pairs had that disconnect.

Economists who study the motivation for inheritance intentions tend to probe two general areas. The first involves the moral obligation that parents feel toward their offspring, no matter how much support they may have given to them already. A subset of adult children seem to understand this innately. In Ms. Kim’s study, the adult children who were getting money from their aging parents while they were still alive had a higher expectation of getting more once they were dead than other adult children. Entitlement, anyone?

The other inheritance theory relates to exchanges. The assumption here is that parents wish to reward children who help them while they are still alive with an inheritance after they’ve died. They may even subtly (or not so subtly) dangle the prospect of a bequest in front of the children while they are still living to encourage the desired behavior or assistance. What Ms. Kim and her colleagues found, however, was that the adult children who were providing more support were less likely to expect an inheritance, even though their parents were indeed more likely to intend to give them one.

The message here would seem to be that aging parents are generous to a fault, if a bit manipulative on occasion. Adult children, meanwhile, accept their obligations to care for their parents with little expectation of receiving anything in return, though some who remain on the dole well into adulthood expect their parents to provide for them from the grave too.

The study’s yes-no questions, however, are relatively limiting. Many parents may be hoping to leave just a token amount, after all. Adult children might lie about their expectations to please the researchers, too. And besides, even if you expect nothing it doesn’t mean that you don’t badly want that very thing.

For more insight on this, I turned to an academic who has recently gotten into the business of trying to get older Americans to tap into their home equity during their retirement years. Christopher Mayer is an economist at Columbia Business School with an expertise in housing finance and policy. But he’s also the chief executive at a new reverse mortgage company called Longbridge Financial.

Reverse mortgages, which allow people 62 and older to tap some of the equity in their homes without having to make any loan payments until they die or move out, are roughly half as popular as they were before the housing crisis. Plenty of bad actors persuaded elderly homeowners to take lump sum loan distributions and plow them into inappropriate annuities or other financial products. As a result, protective adult children often come with their parents to discuss reverse mortgages with the person pitching the loan.

But who exactly are they protecting? “It’s hard to have more than three or four conversations with a family before the inheritance topic comes up,” Mr. Mayer said of the children who try to talk their parents out of tapping their home equity. “There are times when they say `Mom and Dad, that could be useful money for me.’”

Hoarding home equity certainly seems prudent. After all, the money tied up in a home can be awfully useful for people who suddenly need $200 a day for in-home care or to enter a nursing facility. Having that source of capital at hand means that they won’t be a financial burden to their children or have to take their chances with Medicaid. Anything left over can go toward an inheritance.

Mr. Mayer is fighting another fact, too, which is the significant percentage of people for whom real wages have not been rising much. “You can look at the next generation and wonder whether your kids will be in a position to do much better than you did,” Mr. Mayer said. So older people scrimp and save and aim to leave some money behind to try to give the younger set a boost.

Adult children who are trying to talk their parents out of a goal like this face long odds. “When people see their time horizon shrinking, they tend to focus on goals that are emotionally meaningful as opposed to more practical ones,” said Laura L. Carstensen, a psychologist who runs the Stanford Center on Longevity. “For the most part, it’s a focus on what or who matters most, and it’s family and family.”

So noted. But in the very least, the generational disconnect in expectations around inheritance need not exist. Ms. Kim chalks this up to the age-old problem of families having trouble initiating forthright conversations about money. And given that older people tend to be more old-fashioned about this sort of thing, it’s on us kids to declare our expectations and begin persuading our parents to worry less about having much of anything left over after they’re gone.

So here it goes. Mom and Dad: I expect nothing from you going forward except love, conversation, holiday meals and grandchild babysitting. Spend your money on your health and comfort and making the kinds of memories with close friends and family members that will last even as other, older ones, fade. Leave a bit aside for me or for charity if it truly makes you happy, requires no sacrifice or makes sense for tax reasons. But otherwise, spend what you have and have faith that the education and life skills you already gave me are more than enough.

I don’t want an inheritance, nor do I expect one. If any fellow adult children agree, go tell your parents the same thing this weekend.

Source:  nytimes.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/news/inheritance-now

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Senator Proposes 65% Estate Tax

Wills, Trusts & Estates Prof Blog by Gerry W. Beyer

tax estateAs Republicans work to reduce federal estate tax rates, Senator Bernie Saunders counters with a completely opposite approach: an estate tax with rates ranging from 40 percent (for estates of $3.5-$10 million) to 65% (for estates over $1 billion).

“It’s one thing to ask rich people to pay more of the cost of government.  It’s another thing entirely to tell those rich people that they are just too damn rich,” Joseph Thorndike commented about the new proposal.

Only time will tell if this seemingly extreme proposal will become a reality.

Source:  lawprofessors.typepad.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink: http://thetrustadvisor.com/news/65-estate-tax

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What the Latest List of Top Wealth Management Firms Tells Us

The bulge bracket now reaches to the stratosphere. Among the true ultra-high-net-worth wealth management firms, Bank of America just cleared a critical milestone — the bank now boasts more than $1 trillion in AUM in the channel.

What’s interesting about this is how concentrated the private client business has become. Working with elite investors was always a somewhat rarefied field, but the last decade of forced mergers and corporate marriages in the wirehouse have left the competitive map shaped like a barbell.

Barron’s posted its most recent rankings here: http://barrons.wsj.net/public/resources/documents/PenTop40_1.pdf

Just the 12 biggest firms on that list are running $4.7 trillion in accounts that need an investor to write a check for $5 million or more simply to open. Granted, that kind of AUM might represent $47 billion in annual management fees, but while these clients are undoubtedly tempting, it’s an open question how many more of them are out there for the rest of the industry to prospect.

A very basic calculation indicates that those 12 firms might have 4,700 notional billionaires on their books, which is an awful lot of billionaires. Or they might have close to a million accounts that can barely scrape up $5 million apiece. Whichever way the math goes, it’s a lot of the world’s richest people.

As it happens, there are only 1,670 people on the Forbes billionaire list, so it’s a pipe dream that all of these accounts or even the majority are full-fledged whales. Most have got to be relatively small, the kind of thing a typical independent RIA would love to chase.

You can see that happening as the numbers drop very fast from the top of the Barron’s list. From Bank of America Merrill Lynch with $1 trillion of the pot for itself, the other four traditional wirehouse firms — counting JPM — only scrape up $2.4 trillion between them. That’s 72% of the assets in the top 12, spread across just five banks.

By the time you get to Goldman Sachs, you’re only scraping 5% out of the $4.7 trillion. And once you leave the top 12 entirely, the regional brokerage firms are fighting for market share barely 1/10 of what the giants have achieved.

Is this supposed to be depressing? Of course not. Every nimble independent RIA can find just a few multi-millionaires and maybe dream of finding a billionaire looking to set up a family office off the beaten track. Put together three $5 million clients and a small shop can actually do pretty well for itself.

But trying to beat the wirehouse at its own game may not be the key here. Maybe the secret of success is to let the big firms fight each other and promote yourself as the radical alternative. Remember when Apple had only 3% of the computer market?


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SEI White Paper: Wealth Managers To Become More Like Financial Quarterbacks

Press Release

QB-On-Demand Data and Real-Time Decision Making Will Be Essential for Next-Generation Wealth Managers

As the financial industry faces changing consumer desires and expanding digital offerings, bank and trust wealth management firms are at a crossroads in how to best bring young wealth managers into the fold, while simultaneously ensuring they have the support needed to succeed with the new breed of investor. According to an SEI (NASDAQ: SEIC) white paper, firms can help their wealth managers optimize performance, productivity, and client satisfaction ratings by improving their infrastructures. The paper, “Creating the Next Generation of Wealth Managers: The Financial Quarterback,” explores what the wealth managers of the future will look like, and the role leadership plays in fostering employee and client growth.

“Through our research, we’ve discovered that wealth managers are most productive and add the most value to a firm when they’re working with clients to develop effective strategies to achieve life goals. With the abundance of digital strategies, pure investment and return advice is not enough – wealth managers must leverage the human factor to stand apart,” said Al Chiaradonna, Senior Vice President, SEI Wealth Platform, North America Private Banking. “But, we’ve found that many firms are struggling to help wealth managers focus primarily on client-facing work because administrative and operational tasks get in the way. This points to a fundamental problem in an evolving industry like ours. If firms don’t analyze what makes a wealth manager productive, how can they expect higher productivity?”

The paper reveals that the next generation of successful wealth managers will be more like financial quarterbacks versus traditional wealth managers. No longer will they set long-term strategies and evaluate them quarterly or annually, they will evaluate situations in real-time and make changes where appropriate. Tools and on-demand data that help them better understand the entire client relationship, not simply transaction-based systems, are the keys to the future.

Similarly, investors are changing as well, especially in the way they talk about their money. As such, goals-based investing has become an industry buzzword and a favored method to determine how to invest. That, in turn, alters the way wealth managers need to interact with their clients. The paper encourages senior management to help wealth managers cut down on non-client-facing activities in order to manage a more effective and comprehensive communication process.

To set wealth managers up for success, the industry should heed sports science, reveals the paper. Game film, data, good coaching, and a quality supporting cast all combine to put superior athletes in positions to win every day. This model translates well for wealth management firms.  Firms looking to move from good to great need to better utilize the technology and information at their disposal to determine how the business model and company environment impacts wealth manager effectiveness. Only then can they work to correct any irregularities and improve performance.

“Just like a coach spends extra time molding a player, senior management needs to take the lead in turning wealth managers into the firm’s all-star financial quarterbacks,” said Chiaradonna. “That takes more than just a pep talk here and there; it involves digging into the psyche of a wealth manager and creating best practices and strategies that help differentiate the firm from others.”

The paper, published by SEI Executive Connections, is the fourth in a four-part series, titled “SEI Insights: The Future of Wealth Management,” which explores four key areas outside of the financial industry that offer opportunities for transformation in the wealth management industry. The first three parts of the series examined the benefits of employing a unified platform to overcome legacy system issues, embracing business model reinvention to improve enterprise risk management, and challenging traditional thinking around asset-based segmentation. SEI Executive Connections is a community for bank executives and industry experts which provides business intelligence and opportunities to interact on banking topics and trends. To request a copy of the full paper, please visit http://www.seic.com/enUS/banks/14683.htm?cmpid=pr-925-advproductivity-wp.

About the SEI Wealth Platform

The SEI Wealth Platform (the Platform) is an outsourcing solution for wealth managers encompassing wealth processing services and wealth management programs, combined with business process expertise. With the Platform, SEI provides wealth management organizations with the infrastructure, operations, and administrative support necessary to capitalize on their strategic objectives in a constantly shifting market. The SEI Wealth Platform supports trading and transactions on 115 stock exchanges in 48 countries and 33 currencies, through the use of straight-through processing and a single operating infrastructure environment. For more information, visit: www.seic.com/wealthplatform.

About SEI

SEI (NASDAQ:SEIC) is a leading global provider of investment processing, investment management, and investment operations solutions that help corporations, financial institutions, financial advisors, and ultra-high-net-worth families create and manage wealth. As of June 30, 2014, through its subsidiaries and partnerships in which the company has a significant interest, SEI manages or administers $602 billion in mutual fund and pooled or separately managed assets, including $249 billion in assets under management and $353 billion in client assets under administration. For more information, visit www.seic.com.

Source:  seic.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink: http://thetrustadvisor.com/headlines/wealth-managers-quarterbacks

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Armed With FATCA, IRS Hunts Offshore Tax Evaders, While Canada Eases Up

Forbes article by Robert W. Wood

us canIn a move tied to budgets, Canada’s Revenue Agency is cutting its top staff focused on international tax evasion.

Cuts to experienced personnel who ferret out aggressive tax planning appear to be deepest, despite comments by MP Gerald Keddy that “the CRA is not reducing the number of auditors, nor the number of tax evasion and tax avoidance experts.” See CRA to cut managers, fold tax-evasion units, memo shows.

The shake-up is raising concerns that the Canadian government’s crackdown on offshore tax cheats may be all talk. or at least more talk than action. Yet Canada has gone to great pains to make clear that it is going after evaders. For example, Canada signed on to FATCA, the Foreign Account Tax Compliance Act, America’s global tax law.

FATCA is a key weapon in the American war on tax evasion. It requires foreign banks to reveal American accounts holding over $50,000. Non-compliant institutions could be frozen out of U.S. markets, so everyone is complying, even China and Russia. The IRS has a searchable list of financial institutions. See FFI List Search and Download Tool and a User Guide. Countries on board are at FATCA – Archive.

America taxes its citizens and permanent residents on their worldwide income regardless of where they live. In 2009, the IRS and Department of Justice sliced through the Gordian knot of bank secrecy, netting account holder names and a $780 million penalty from UBS. Many other Swiss banks have fallen into line. A few closed their doors, and the rest now say Swiss bank secrecy really didn’t mean what you thought it meant.

Credit Suisse paid a $2.6 billion fine, and avoided death in U.S., copping to a U.S. felony tax charge, an astounding hit. Americans are particularly unable to hide anywhere for any reason. FATCA is America’s global tax law. It requires foreign banks to reveal American accounts holding over $50,000. The world has agreed, even Russian and China, and names are being revealed to the IRS.

The nature of private financial arrangements is also becoming less private. In administrative cases before the IRS and in tax prosecutions, the use of trusts and companies have come under fire. The IRS and DOJ underscores these common devices to enhance the willfulness that may be present, suggesting that efforts to be anonymous are suspect. In many ways, the cover-up is worse than the crime. In some cases, such layers can make innocent activity ‘willful’ triggering IRS penalties or jail.

All of this comes at a time when secrecy itself is under attack. The UK is moving to make company ownership entirely transparent. If current proposals pass into law, that may be replicated elsewhere. The topic of company ownership transparency is being discussed in Brussels too.

Nominee ownership used to be common. Nominees are straw-men listed as owners or directors of a company, but who are acting on behalf of someone else. As secrecy itself as come under attack, this once extremely common device is now more likely to be viewed as a problem that triggers others. Indeed, secrecy and willfulness may be linked like never before.

Although there is no doubt that America is still firmly on the scent of tax enforcement, Canada’s position is more tenuous. For one, a lawsuit has been filed against the Canadian Attorney General challenging the constitutionality Canada’s FATCA agreement with the United States. The legal claim is that the agreement violates provisions of the Canadian Charter of Rights and Freedoms. That document enumerates the right to life, liberty, security of person; security against unreasonable search and seizure; equal protection of law without discrimination.

That is a serious charge. So is the contention that Canada’s FATCA agreement flies in the face of the “principle that Canada will not forfeit its sovereignty to a foreign state.” And yet for now, given that Canada signed FATCA, the IRS will get the data. How reciprocal the information will be, is another uncertainty. And with the controversy in Canada, perhaps that is of little moment.

Source:  forbes.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink: http://thetrustadvisor.com/headlines/offshore-tax-evaders

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Opinion: How ‘Best Wealth Manager’ Lists Mislead You

MarketWatch article by Mark Hurley

wealth_manager_listAssets under management are largely meaningless in helping you pick a professional

Selecting a financial adviser is a decision that will affect the quality of your lifestyle for many years, even for the rest of your life. But financial advice can be a lot like flying: It’s hard to determine that the pilot doesn’t know what he or she is doing until the plane crashes.

As a result, people turn to financial publications to identify a great adviser. And there are many annual lists of the “best wealth managers” published by those organizations. Given their supposed expertise and experience, you would think the people who write the lists actually know what they are doing.

Well, no. In reality, more than half of firms included in a typical “best wealth managers” list are small, unprofitable and unsustainable organizations that are unlikely to be around for the long term.

How is this possible? Because the lists rely on one impressive-sounding, but largely meaningless, metric: assets under management (AUM). In other words, when you parse the lists, they are in reality no more than just a ranking based on how much money each firm has under management.

To be sure, it does sound impressive when a firm says it manages more than $1 billion of assets. But having lots of AUM is analogous to being an admiral in the Swiss Navy: a big title with little substance.

Why? AUM tells you little about a firm’s expertise, credentials and experience of its key people. It also tells you nothing about how the firm gets paid for its advice. More importantly, you need advice for the long term. And assets under management tell you nothing about how likely it is that a firm will be in business for the next five years, much less the next 20.

As someone who has followed the wealth-management industry for more than 15 years, I have found numerous firms that have large amounts of AUM but make no money as businesses. Some are only profitable because they charge their clients more than 3% per year if you include hidden charges in products. Others are glorified sole proprietorships — you know, firms with lots of people but, in reality, the founders make all of the decisions and own all of the firm’s equity. Once they leave, the business will vaporize. (Heck, even one prominent “best wealth managers” list includes brokers — yes, brokers! No sane person should count on a broker for anything longer than the next trade.)

Given all of this, why do so many publications use AUM as their key selection criterion? Because it is easy to get this information. Everyone is required to disclose AUM, and there are numerous data services that track it. And with the push of a button — voila! — the author is 95% of the way to completing the list.

So how should you choose an adviser? Look at the following criteria. They require a bit more research (you can find the data on a firm’s website and at the SEC’s adviser site), but you’ll have a much better idea of what you are actually getting:

1. Is it fee-only? If you want to understand what your financial adviser really thinks about an investment, first understand how she is getting paid. A “fee-only” adviser’s sole remuneration is the fee directly paid to by the client. So the only incentive is to get the best returns for clients.

To be sure, do not confuse fee-only with “fee-based.” The latter means that the adviser collects both fees and commissions as well as kickbacks from products in which the client’s money is invested. Anyone who gets advice from someone who is “fee-based” needs his head examined.

2. Will this firm be around for the long term? To judge this, how broadly is its ownership held? If all of a firm’s equity is held by a few older partners, you should assume it is going to be in business (at least in its current form) for only as long as they are there. Well-run, sustainable wealth managers have multiple owners across different generations.

3. How much expertise does its employees have? The smartest people at the truly great wealth managers are not the founders but, rather, the many young people the founders have recruited to be their successors. These younger staff should have professional designations such as a CFP or a CFA, and at least five or 10 years of experience. And there should be many of them. In reality, they are the people who you are going to count on for advice 20 years from now.

4. Does the wealth manager earn money as a business? A surprising thing about many wealth managers that have lots of AUM is that they rarely make any money. Why should you care about this? Because any business that does not make much money is unlikely to be around for the long term, and you are looking for long-term advice.

If you divide a firm’s AUM by the number of clients, you can figure out its average client size. Multiply that by its fee schedule, and you can estimate its revenue. (Subtract 20% because many firms often discount fees for larger clients.)

Firms with less than $3 million of annual revenues typically do not earn any money. Certainly, their owners are paid salaries for working as employees, but the underlying firm makes no money as a business.

For firms with more than $3 million of annual revenue, count the number of professional staff (i.e., not administrative personnel like receptionists), and if the firm averages 2.5 professionals or fewer per $1 million of revenue, it is probably profitable as a business.

You’ve spent your life building your wealth, and you need someone who is both honest and competent to guide you on how to invest it. Like anything else in life, a good outcome depends on doing your homework and not relying on simple lists that tell you next to nothing about the quality of a firm.

- Mark Hurley is the founder and CEO of Fiduciary Network, a Dallas-based investment bank that specializes in the wealth-management sector.

Source:  marketwatch.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/news/best-wealth-manager-lists

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Is Too Much Liquidity Forcing Banks Into Wealth Management?

Value Walk article by Clayton Browne

liquidA new report from Rafferty Capital Management suggests that the excess liquidity in the financial system together with the current regulatory environment means that wealth management services are only way banks can make real profits today.

In an investment report dated September 17th, Rafferty’s VP of equity research, Richard X. Bove, outlines his argument that “regulated banking companies in the United States and some other western countries have a problem.” Although, we would guess that Paul Singer disagrees.

Bove points out that most of the balance sheet-oriented business of financial institutions have been nationalized by the government. Moreover, bankers are limited in how much they can expand their balance sheets or if they will be permitted any balance sheet growth at all.

He also argues that banks are being told how to allocate the assets on these balance sheets and how to invest the assets within each category. Moreover, they are even being told how to fund these assets by category. Last but not least, Bove notes that banks have no control over base pricing, that is, interest rates. Bove goes on to say the “net result is that in the past six years FDIC-insured banks have added:

  • One dollar in capital for every five dollars in assets for an incremental equity to asset ratio of 20%; and
  • They now have $3.4 trillion more in deposits than they have in loans. The result is an industry, which one might argue based on history, is both overcapitalized and drowning in liquidity. The only time U.S. banks have been in this position in the past was during the Depression and World War II. The loan to deposit ratio in that period actually got as low as 17.0% in a nation starving for private funding.”

Current conditions forcing banks into wealth management

Bove extends his argument to say that banks almost have to expand into wealth management in order to make a profit in the current environment. He says bank managers have to reduce their dependence on effectively nationalized balance sheet-oriented businesses and move on to areas that are not as regulated as traditional banking today.  He goes on to say the only real solution to the problem is to develop a wealth management business. The WM sector is lightly regulated, requires minimal capital, and can produce good returns on both revenues and capital together with investment management.

Bove concludes his report on a cautionary note: “Therefore, just about every bank in the countries I follow– the U.S., Canada, and Switzerland – have decided to build wealth management businesses and to build them in the United States. To me, this means that this business that has been relatively immune to rigorous competition for the past 7 years is about to experience a significant change. Competition for sales people is about to go up. Prices for services are likely to go down. The profitability of the business is about to change.”

Source:  valuewalk.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink: http://thetrustadvisor.com/headlines/banks-wealth-management-2


Growth-Focused Investing In the U.S.

Capgemini Report

Propelled by increased trust and confidence, U.S. HNWIs continued to adopt a growth-focused approach to investments, and reflected an increased appetite for risk.

Their allocations to equities, though down from a year earlier, remained the highest across the globe, at 32.6% (see figure below). Allocation towards alternative investments expanded by nearly four percentage points, the largest increase across all asset classes. U.S. HNWIs were also more inclined towards investing beyond North American borders, bringing their international allocations up to 32.9%, from only 19.7% a year earlier. Inclination towards investment outside their home markets was primarily driven by younger HNWIs (under 40) as the percentage allocation of this segment, outside home markets, increased by 14.3 percentage points to 52.8%.

MSAs Leading the Growth Focus

HNWIs in the California cities of Los Angeles, San Francisco, and San Jose were leading drivers of the growth-focused asset allocation. They had above-average allocations to alternative assets and real estate, and were much more likely to invest abroad. Combined allocation to real estate and alternative investments in these three cities was more than 30%, compared to an average of 26.8% for all U.S. HNWIs. Their allocations to international markets stood at 44.5%, compared to the U.S. average of 32.9%. Driven by increased real estate prices and high levels of technology firm start-ups, HNWIs in Los Angeles stood out for having much higher allocations to real estate (20% versus a U.S. average of 14%) and alternative investments (16% versus a U.S. average of 13%) and were the most likely among all the U.S. HNWIs to invest outside the home region (47% versus a U.S. average of 33%).

HNWIs in Washington D.C. stood out for having much higher allocations to equities (41% versus a U.S. average of 33%) and, along with Seattle, being the cities that invested the least outside of the U.S. (19.5% and 19.9%, respectively).

Breakdown of U.S. HNWI Financial Assets, Q1 2014


Source:  worldwealthreport.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink:  http://thetrustadvisor.com/headlines/growth-focused-investing

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Estate Planning and Assets: How Much Do You Have To Pass On?

Forbes article by Larry Light

EstatePlanning (2)We don’t like to think of our own death, but given its inevitability, sooner or later, we need to be ready to pass along our worldly goods to others. Having a good estate plan is key. One of the smartest advisors in this area is Elizabeth P. Anderson, CFA, the founder of Beekman Wealth Advisory, a boutique financial consultancy in New York. Here is the first of three parts of her advice on this crucial subject:

The decisions you make now about where your assets go after your death can affect people’s lives profoundly. This three-part article walks you through some of the basic issues involved with estate planning. This initial part is figuring out how much your estate is worth.

Most people avoid thinking about, let alone planning for, their death. And yet making arrangements can be a liberating experience. Relieving your families of the burden of having to do it for you is also a demonstration of consideration, kindness and love.

Estate-planning advice often revolves around the choice and creation of legal structures and documents, such as wills and trusts. Indeed, these are critical tasks and you should consult a knowledgeable trusts and estates attorney to get them done right. However, before determining which structures to use for your estate-planning goals, you first need to figure out exactly what those goals are.

The most basic estate-planning issues to address are 1) how much you can give, 2) who gets your assets and 3) when, either during your lifetime or after your death. These three issues are interactive. A change in one can affect the others and the outcome of the estate-planning process.

A few words of caution (and encouragement) before beginning: Estate planning is a complicated and highly personal endeavor, with many moving parts. It’s usually best to proceed methodically, breaking down the project into manageable steps and then completing one at a time.

First, how much can you give away? Figuring this number out requires a few steps and a little math.

1. Net worth = assets – liabilities

How much you have is your net worth — the total value of what you own, minus the total amount you owe to creditors. To determine your net worth, the first thing to do is to gather the most recent records of what you own and what you owe.

On the asset side (what you own), these records include bank statements, investment statements (such as from mutual fund accounts and retirement plans), trust assets and business interests. Appraisals of personal property if appropriate and estimates of the value of other tangible property, such as real estate, should also be included. On the liability side (what you owe), the relevant documents include credit card statement, mortgage statements, tax bills, student loan statements, business loan documentation, and any other evidence of indebtedness.

Once you have the documents collected, you create an organized listing of assets and liabilities. Your net worth is the amount by which your assets exceed your liabilities.

There are many net worth calculation tools available online for free. For example, Rutgers University provides a relatively complete and well-designed worksheet. Some calculators do the math for you.

One nuance to be aware of in calculating your net worth is contingent assets and liabilities. They are assets and liabilities that don’t yet exist, but likely will, given the passage of time or a specified event occurring. For example, life insurance is the most important contingent asset for most people planning their estates. The death benefit does not yet exist, obviously, when you calculate your own net worth, but you should include it when thinking about how much to leave.

2. Portfolio spending = total spending – earned income

Once you have your net worth calculated, and you know how much of a portfolio you have, the next step is to figure out how much of a portfolio you need to support your life. The first step in this calculation is to determine how much you spend.

This is another place an online tool works well. Many spending calculators are available with a simple Internet search. You enter your monthly or annual spending by category (housing, food, clothing, insurance, entertainment), and the calculator totals it up for you. Be sure to include an estimate for foreseeable, but lumpy, amounts, such as for home maintenance needs (new furnaces, new roofs).

Now that you have your total spending, the next step is to figure out how much of that spending needs to be funded by your portfolio. First, you add up all income, including wages, salaries, pension, Social Security benefits and alimony. Then, subtract your income from spending. This is the amount that you need to pull from your portfolio, or portfolio spending.

3. Required base = portfolio spending / sustainable spending rate

Next, calculate the size of the portfolio you need to support your spending. We call this your required base. You divide the portfolio spending amount by the sustainable spending rate.

The sustainable spending rate is the percentage of a portfolio that you can withdraw each year without diminishing the portfolio value. It is total investment return minus inflation and taxes. Most practitioners use a rate of 4% as a general guide, but this can vary from person to person.

Thus, if 4% is the sustainable target spending rate, and your spending needs from your portfolio are $100,000 per year, you need a portfolio of at least $2.5 million. If you spend more than 4%, or your starting portfolio is less $2.5 million, you diminish the value of your portfolio over time.

Armed with all of these numbers, you can now approximate the amount of your portfolio that you can give away during your lifetime without impairing the quality of your own life.

4. Asset surplus = net worth – required base

If your net worth exceeds your required base, this amount is your asset surplus. If your net worth is $4 million and your required base is $2.5 million, you can gift up to $1.5 million during your life. On the other hand, if you don’t have an asset surplus, you may not want to give away your assets while you are alive.

5. Income surplus = earned income – spending

Even if you don’t have an asset surplus, you may still have an income surplus. If your annual spending needs total $100,000, and your annual after-tax income is $125,000, you can give away up to $25,000 per year without disrupting your lifestyle.

If so, note that the government sets an amount one can give as a gift each year without incurring gift taxes. The Internal Revenue Service calls it the annual exclusion amount. This now is $14,000 per recipient in 2014. Consult your tax advisor or trusts and estates attorney about annual gifts exceeding this amount.

Source:  forbes.com

Posted by:  Steven Maimes, The Trust Advisor

Permalink: http://thetrustadvisor.com/daily-service/estate-planning-6

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